Stockmarkets plunged amid fears that uncertainty in the eurozone’s third biggest economy would trigger another more dangerous phase of the debt crisis. Italy’s MIB fell 4.9pc, Spain’s Ibex was down 3.2pc, the French CAC dropped 2.7pc and the German Dax fell 2.3pc.

In London, the FTSE100 slid 1.3pc led by the banks which are exposed to eurozone sovereign debt. Borrowing costs dropped, despite the loss of the UK’s AAA credit rating, as the country resumed its safe-haven status. The yield on the benchmark 10 year gilts dropped below the 2pc level again.

The depth of anti-austerity rebellion in Italy was laid bare by a 25pc vote for Five Star, the protest party led by comedian Beppe Grillo. Brussels’ favourite, Pier Luigi Bersani failed to put clear distance between his centre-left Democratic party and Silvio Berlusconi. Mario Monti, the former premier who promised fiscal discipline, came a distant fourth. A re-run is on the cards pointing to months of limbo.

The economist Stephen Pope said: “Any notion that the Eurozone had escaped a full blown crisis has been blown out of the water in the aftermath of the election which has effectively left the third largest economy in the Eurozone and home to the largest government bond market ungovernable. How many months of agony will be endured until we have to wade through the quagmire of another Italian general election which may shades of inconclusion writ all over it?”

The euro recovered from a seven-week low against the dollar - but only because traders bet that Italy would be forced to ask for support from the European Central Bank to remain stable. The markets have for months been reassured by the backstop pledge of the ECB to buy bond, or its Outright Monetary Transactions (OMTs). But the scheme requires a bail-out agreement before it can be deployed. Christopher Vecchio, currency analyst at DailyFX, said: “Continued political uncertainty could force Italy into accepting the terms of the OMT, in order to calm investors.”